Chapter 6, Problem 4E

Question:

Laker Company reported the following January purchases and sales data for its only product.

Required

The company uses a perpetual inventory system. Determine the cost assigned to ending inventory and to cost of goods sold using (a) specific identification, (b) weighted average, (c) FIFO, and (d) LIFO. (Round per unit costs and inventory amounts to cents.) For specific identification, ending inventory consists of 200 units, where 180 are from the January 30 purchase, 5 are from the January 20 purchase, and 15 are from beginning inventory.

Exercise 6-4 Use the data in Exercise 6-3 to prepare comparative income statements for the month of January for Laker Company similar to those shown in Exhibit 6.8 for the four inventory methods. Assume expenses are $1,250 and the applicable income tax rate is 40%. (Round amounts to cents.)

1. 1. Which method yields the highest net income?
2. 2. Does net income using weighted average fall above, between, or below that using FIFO and LIFO?
3. 3. If costs were rising instead of falling, which method would yield the highest net income?